What happens if you are suddenly unable to provide for your family financially?

Research from Scottish Widows shows that 60% of working mums have no Life insurance, while 87% are without Critical Illness Cover. That means that many mums risk leaving their household in financial difficulty, should they die or become seriously ill.

How important are you?

However, the impact of losing a mum’s income on a household is clear, with the loss of their income meaning that 61% of families would struggle to pay household bills. In addition, a lost income would cause:

31% of households to face financial risk

25% of families to run out of money to pay the mortgage after three months

39% to use their savings to cover the loss of income

The reasons given for avoiding taking out cover make it clear that more than a quarter of mums underestimate how important they are to the household finances:

24% don’t think they need financial protection

7% choose to take the risk, rather than spend time and money on securing cover

Other reasons you might have for putting off sorting out your insurance include:

Not wanting to disclose health issues or lifestyle choices which increase premiums

Not wanting to think about your family losing you

Naivety; simply believing that bad health and untimely death will not happen to you

Ultimately, all these reasons should be outweighed by the need to keep your children and partner financially safe, should anything happen to you.

What about stay-at-home parents?

You might be thinking that having financial protection isn’t important if you don’t bring home an income.

However, your role within the family still affects the finances. If you were suddenly unable to carry out your daily activities, such as childcare and household chores, who would take over, and how would that affect the household budget?

Research from 2014 estimates that stay-at-home parents spend more than 31 hours per week doing housework (Source: Direct Line). That means that your other half will have to find 31 hours of free time (around working and looking after the children) to pick up the slack, whilst also funding childcare. The average stay-at-home parent contributes an equivalent of £29,812 to the household each year, according to SunLife.

What happens when families lose an income?

Almost a third (29%) of mums would turn to state benefits to supplement the household income if they or their partner were unable to work through illness or injury. But what happens when an income stops with no replacement?

Without financial protection, you put your family at risk of:

Getting into debt

Failing to pay bills

Missing mortgage payments, and ultimately, potentially losing their home

Having to use their own financial buffer to recover

Needing to rely on others to support them financially

Having to cut back on important costs such as education or healthcare

What are the chances?

Serious illnesses happen to other people, heart attacks are for the unhealthy and only old people die without warning, right?

That means that burying your head in the sand and telling yourself that it won’t happen to you is no longer good enough. It is time to make changes and protect your family against the worst-case scenario.

What protection do you need?

To fully protect your family against financial difficulties, you should have two types of emergency funding in place:

A buffer

This could be a savings account or fund which contains enough money to keep your family afloat for three-to-six months. Whilst the minimum it should contain is three months’ worth of living costs, it is wise to top it up with some extra. This is just in case you lose an income at the same time as facing other financial burdens, such as a plumbing emergency or car repairs.

This financial safety net should be held in a secure account, which allows for immediate access. You do not want to have to pay fees or penalties for accessing funds at a time of financial crisis.

A simple, Cash savings account is best. You might be tempted to invest this money to get better returns. However, as the money needs to be guaranteed and available at a moment’s notice, it is much more sensible to hold the money as cash.

Insurance

There are three types of insurance which will protect your family, should anything bad happen to you:

Life Insurance

Pays a lump sum or income to your family if you die within the terms of the policy. You can choose how much you want to be covered for, how long the policy will last and how the money will be paid.

Critical Illness Cover

This cover pays a lump sum to you and your family, if you are diagnosed with a serious illness which is covered by the policy.

Income Protection

You can cover your income and ensure that you and your family receive a proportion of your usual wage if you are unable to work due to illness or injury.

To discuss ways to protect you and your family, contact Sarah or Bev on 0115 9338433.

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The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financialombudsman.org.uk.